The Finance Ministry has not yet received any instructions for preparation of a new budget from the government-elect; however reprioritization of the budget presented by the Abbasi-led government cannot be ruled out. This was stated by senior staff members of the Ministry of Finance to Business Recorder on condition of anonymity.
Official sources added that they expect the PTI administration to 'reprioritize' the budget for the current fiscal year 2018-19 to bring it in synch with its manifesto pledges and implement austerity measures with the objective of minimizing expenditure as well as supporting steps to broaden the tax base.
Sources added that the existing tax base would not generate enough resources to meet the challenging PTI reform agenda for the social sectors. Around 80 percent of the budget is allocated for debt servicing, defence and the running of civil government.
Economic challenges are enormous with debt repayment deadline approaching and dwindling foreign exchange reserves following an increase in the current account deficit, they added.
Broadening of tax base is critical to creating fiscal space for implementation of party's manifesto, sources in the Finance Ministry stated.
The new government's emphasis must be on increasing exports by clearing outstanding refund claims as well as providing swift clearance of duty drawbacks on local taxes.
FBR officials told Business Recorder that it will provide recommendations on taxation measures or withdrawal of exemptions following policy directions of the new Finance Minister. The FBR has implemented the budget (2018-19) as per the Finance Act 2018 from July 1, 2018. "If we get any directions from the new government, the FBR will make recommendations or changes in the Finance Act 2018," they added.
"The constitution of the Directorate General of Immovable Property as notified under the Finance Act 2018 would be done under the guidance of new government," FBR officials stated.
So far, no directions have been received from the Finance Ministry to draft new budget proposals. However, the caretaker government is reviewing regulatory duties on the import of around 1,000 items.
Under the Finance Act, 2018, the increase of additional customs duty from 1 to 2 percent on imports across the board would generate Rs25-28 billion in 2018-19. If additional customs duty is proposed to be increased from 2 to 3 percent, it would generate additional revenue, FBR officials stated.
Under the measures taken to broaden the tax base, sources said that the rationalization of withholding tax rates for non-filers is projected to generate Rs1.6 billion in 2018-19. The FBR has consistently espoused the policy of creating a distinction between compliant and non-compliant taxpayers. In order to enhance the cost of doing business for non-filers, withholding tax rates have been increased for non-filers in the case of supplies/sale of goods and contracts under section 153 of the Income Tax Ordinance. For sales/supplies, the rate of tax for non-filers has been increased from 7% to 8% in the case of companies and from 7.75% to 9% in the case of persons not being companies. For contracts, the rate of tax for non-filers has been increased from 12% to 14% in the case of companies and from 12.5% to 15% in the case of persons not being companies.
FBR officials stated that a major documentation measure by imposing restriction on non-filers to purchase new motor vehicles manufactured in Pakistan or new imported vehicles has been launched. Under the Finance Bill 2018, non-filers would not be permitted to purchase new motor vehicles manufactured in Pakistan or new imported vehicles.